An illegal transaction an investor makes by simultaneously buying and selling a Security through two different brokers, thereby creating the illusion of activity.

Investors do this to try and recognize a Tax loss without actually changing their Position. A Wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you buy substantially identical stock or securities, acquire substantially identical stock or securities in a fully taxable trade.

The effectiveness of this strategy has been greatly diminished with the implementation of the IRS 30-day Wash rule, where a taxpayer cannot recognize a loss on an investment if that investment was purchased within 30 days of sale (before or after sale).